Amando Tetangco, governor of the Bangko Sentral ng Pilipinas (BSP), answers questions during an interview at the BSP headquarters in Manila January 17, 2014.
Reuters/Romeo Ranoco

The Bangko Sentral ng Pilipinas (BSP) announced on Thursday that it will retain its policy rates. The central bank has also reduced its inflation rate forecast from 1.8 percent to 1.7 percent.

Here are three fast facts about the BSP retaining rates policy and cutting inflation rate forecast.

1. BSP Governor Armando Tentangco said the decision of retaining rates is due to the firm domestic economic activity.

During its sixth review meeting, BSP said that the Monetary Board decided to retain the 3.5 percent for the overnight lending rate, 3 percent for the overnight reverse repurchase rate, and 2.5 percent for the overnight deposit rate. The Reserve requirement ratios were also likewise left unchanged at 20 percent.

“The Monetary Board’s decision is based on its assessment that the inflation environment remains manageable,” Business World reported Tetangco, Jr., as saying. He added that the “overall balance of risks surrounding the inflation outlook appears tilted to the upside.” He cited the pending petitions for lower electricity rates, proposed adjustments of the excise tax of petroleum products, which could affect transportation fares.

2. BSP’s decision came right after the US Federal Reserve (Fed) also decided to hold off interest rate hike and Bank of Japan (BoJ) holding off adjustments to negative interest rate.

The Fed announced on Wednesday that the interest rate hike could be possible before the year-end. The BoJ also decided to keep its target of a zero yield government bonds for 10 years.

Tetangco noted that the main downside risk seen is the slower global economic activity. He said there is a need for “prudence” in the midst of such uncertainties. ““[I]ncreased uncertainty over prospects for growth and monetary policy action in major advanced economies warrant prudence in policy settings,” Tetangco said.

3. Inflation rate projection is also lowered by BSP. BSP Deputy Governor Diwa C. Guinigundo said that different factors led to this cut.

The inflation rate in August was lower than expected and there is also an expected delay of the increasing power rates. Guinigundo also cited that moderation in economic activity due to the rainy season and the fading impact of election-related spending also influence the lowering down of inflation forecast.

Below is a video of BSP’s Monetary Policy press statement:

Source: YouTube/Bangko Sentral

What do you think of BSP retaining monetary policy, cutting inflation rate forecast? Let us know in the comments section below.

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